From 1st June 2022 businesses using the flat rate scheme for VAT face changes to the way in which they must treat import VAT that will have financial and practical implications for how they prepare VAT Returns.
Currently, if you’re using the flat rate scheme for small businesses and are accounting for import VAT on your VAT Return you must add the value of the imported goods to the total of all your supplies before making the flat rate calculation.
For VAT Return periods starting after 1st June 2022, import VAT accounted for using postponed VAT accounting (PVA) should not be included in your flat rate turnover. Instead, the VAT due on imports should be added to box 1 of the VAT Return after the flat rate calculation has been completed.
More information on working out the VAT due on sales can be found here VAT Notice 700/12, section 4.1 but as this change is potentially less favourable businesses would be wise to review whether the flat rate scheme is still the best option.
There are also practical considerations as to how your accounting software will deal with the change and how you prepare the VAT Return. Xero’s function for postponed VAT accounting calculations specifically state that they won’t work with the flat rate scheme so currently the easiest way to account for import VAT is to refer to your monthly PVA statements and then manually adjust the VAT Return via a journal.
From 1st June this method won’t work as it is not possible to alter boxes 1 and 6 independently of each other or post manual adjustments to a flat rate VAT Return although Xero have plans to release an update which will allow the latter.
If you are going to be affected by this change or feel your business would benefit from a review of its VAT processes, please contact our dedicated team of VAT specialists at help@armstrongwatson.co.uk
